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1 Stock to Buy in May: Lockheed Martin

In this series, we're presenting six ideas for stocks to buy in May -- stocks our writers believe can serve as the foundation for a long-term-focused portfolio.

According to age-old stock market wisdom, investors with money in the market should sell their stocks in May and "go away." Nothing happens in summer, you see. That's when the Wall Street wizards put their Bloomberg terminals in "sleep" mode, and head off to the Hamptons for sun and fun. Why stick around and keep trying to invest when the professionals aren't even paying attention anymore?

Oh, I don't know. Maybe because the professionals aren't paying attention, and we've got the room to ourselves? It stands to reason that if there's any time of year when individual investors have a chance of outplaying the Wall Street pros at their own game, it's when these pros are paying the least amount of attention is probably your best chance to snag some nice bargains in the market.

And this May is no different. Today, I want to suggest one name to consider for inclusion in your portfolio, a name that should perform well in all seasons, not just in May: Lockheed Martin (LMT - News).

The businessThe world's largest defense contractor, Lockheed's business breaks down into four basic segments:

The first three businesses contribute roughly equal percentages of Lockheed's revenues, with space systems trailing at about an 18% share of the business. Profits-wise, space is the company's most profitable business by margins, while aeronautics and electronics tie for second place. (Because they provide so much of Lockheed's revenues, however, aeronautics and electronics together contribute a good amount of Lockheed's profits: about 65%.)

Why it's a stock to buy in MayAs I say, this is just a broad outline. Like most defense contractors in these days of uncertain defense budgets, Lockheed is constantly shifting emphasis from one business segment to another, spinning off non-core businesses and dipping its toes into the water on new opportunities -- going wherever the revenues are. As recently as just a couple years ago, for example, Lockheed's space business was both smaller, and earning fewer profits. That's the bright side of owning a conglomerate: Whenever one business falters, the others can pick up the slack.

And yet, even if Lockheed's defense businesses are lagging today, they're key to the long-term success of Lockheed. In this regard, one product in particular stands out: Lockheed's F-35 stealth fighter. Although the F-35 has been criticized as being "the most expensive weapons program in human history" according to Wired.com, former Chairman of the Joint Chiefs of Staff Michael Mullen also predicted it will be the last manned fighter jet ever to be built.

That's crucial to the investment case for Lockheed. Defense industry experts believe F-35s will still be flying 60 years from now and will generate roughly $1 trillion in sales for Lockheed domestically over their lifetime. But that's just the beginning. F-35 is an international effort, with foreign partners expected to buy roughly one-third of the planes. Add these sales to the mix, and F-35 becomes potentially a $1.3 trillion project.

To put this in perspective, F-35 could account for one-third of the revenue Lockheed collected last year, and guarantee that level of revenue for the next 60 years. That's if Lockheed never codes another software program, builds another satellite, or constructs another Littoral Combat Ship... ever. Downside protection doesn't get much stronger than that.

RisksNow of course, every investment has risks. With America's national treasury basically running on empty, defense budgets are getting slashed, and even orders for the F-35 have been delayed as a result. Suggestions that the program might be canceled, though, are off-base.

How do we know this? First, because Mullen said so. The F-35 is it -- the last fighter jet we'll ever produce and the one that will replace many of the other fighter jets in America's arsenal. If F-35 gets canceled, America must revert to technology 20 years obsolete for its arsenal. There's nothing on the drawing board to replace it.

Canceling or even ratcheting back the F-35 program would also have significant political implications, considering the number of international partners that have signed on to help develop the fighter, invested in it, and based their own national defense programs on the assumption it will get built. America can't easily unhitch itself from this multinational team effort. (And when I say "can't easily," what I really mean is "can't, period.")

ValuationAt less than 11 times earnings, and paying a 4.4% dividend, Lockheed Martin looks cheap for a company with such strong and long-lived prospects. And for investors worried that the company's 7% projected growth rate is too slow, just check out Lockheed's recent earnings report -- in which Lockheed reported a 28% jump in profits, and exceeded Wall Street's predictions by 18%. Right there's your proof that Wall Street doesn't know everything, and that against all odds, Lockheed can still surprise and delight its shareholders.

Fool contributorRich Smithholds no position in any company mentioned. The Motley Fool owns shares of Lockheed Martin.